AUD/USD: Bears keep reins around 0.7100 on PBOC rate cut, risk-aversion

• AUD/USD retreats towards intraday low after PBOC rate cut.
• PBOC lowers 1-year LPR by five bps, keeps 5-year rate unchanged.
• Yields, stock futures and Asia-Pacific stocks portray risk-off mood.
• Omicron, US stimulus and Fed concerns weigh on sentiment, China’s Kaisa struggles to defend buyers.

AUD/USD remains on the back foot for the second consecutive day, down 0.10% around 0.7115 during early Monday morning in Europe.

The Aussie pair recently dropped on the People’s Bank of China’s (PBOC) surprise rate cut. Also weighing the risk-barometer pair is the sour sentiment in the markets.

The PBOC announced a five basis points (bps) of a cut to the benchmark one-year Loan Prime Rate (LPR) top 3.80% while keeping the five-year rate intact around 4.65%. The same highlights the economic woes at Australia’s largest customer.

Even so, China’s troubled firm Kaisa tries to renew market optimism, but fails, while filing for resumption of trading of the company’s shares. Also on the positive side was news from Reuters saying, “It has not received any notice from bondholders to accelerate repayments yet as the embattled Chinese property developer has not repaid a $400 million bond, or interest on notes due in 2023 and 2025.”

It’s worth noting that disappointment over US President Joe Biden’s Build Back Better (BBB) plan, after the key Senator refused to back the stimulus, also weighs on the market sentiment. On the same line were the latest fears over the South African covid variant, namely Omicron, even as Australian policymakers cheer 90% vaccination rates to turn down the virus fears and shrug off chances of fresh activity restrictions on Christmas.

That said, DXY jumped the most in six weeks the previous day after comments from Fed Board of Governors member Christopher Waller renewed the Fed rate-hike concerns and weighed on the AUD/USD prices. “The ‘whole point’ of the Fed's decision to accelerate the pace of its QE taper was to make the March Fed meeting ‘live’ for a first rate-hike,” said the policymaker per Reuters.

Against this backdrop, S&P 500 Futures drop 0.50% whereas the US 10-year Treasury yields drop 1.5 basis points (bps) to 1.38%, down for the third consecutive day at the latest. Further, Australia’s ASX 200 dropped 0.30% by the press time even as stocks in China traded mixed.

Looking forward, risk catalysts are likely to be the main drivers of the AUD/USD amid a lack of major data/events.

Technical analysis

A confirmation of the rising wedge bearish chart pattern favors AUD/USD sellers to aim for the 0.7030 and the 0.7000 threshold until the quote stays below the convergence of the stated wedge’s resistance line and 200-SMA, around 0.7220.